Arabtec Holding (Arabtec) announced that it had reached an agreement with Aabar Investments (Aabar) on a AED400mn debt facility. This followed the news released on Wednesday 13 July regarding securing BHD107mn (cAED1.1bn) in debt facility jointly from Mashreqbank and Arab Bank to the Arabtec-TAV JV to fund the working capital requirements of the Bahrain International Airport project. We contacted management on Thursday 14 July to get more light on the above news.   The following is of note:     The agreements come in line with the news released last month regarding Arabtec’s plans to hold discussions with the company’s major shareholders (Aabar is a shareholder with a 36% stake) and banks to enhance the company’s capital structure. Management indicated that discussions would continue, albeit with less urgency      The terms of the loan from Aabar continue to be confidential, but management stated that they come at favourable terms. This is in terms of cost and use, with flexibility to utilise across the company’s ongoing and future projects. The funds will be injected directly in the company’s operations to help project execution and delivery   The option to raise equity continues to be on the table, but not for implementation in the short term. Management is comfortable with the company’s liquidity and leverage positions, following the two debt announcements   We note that while the drawdown of the new loan facilities is expected to add further upward pressure to Arabtec’s leverage ratios (with net debt-to-equity ratio of 0.47x in 2016e and 0.56x in 2017e up from 0.30x in 2015), the secured funding will likely reflect positively on projects execution, and thus on the company’s reported revenue (flattish in 2016e, in our numbers). Despite higher leverage ratios, Arabtec compares favourably vs. its regional peers; our MENA contractors’ coverage net debt-to-equity is 1.0x in 2016e and 0.97x in 2017e, on average. We have a Sell recommendation on Arabtec on a downside potential of 25%. (Company disclosure, Mai Attia)   Arabtec (DU): AED1.50 as of 14 July 2016, Rating: Sell, FV: AED1.13 per share, MCap: USD1,886mn, ARTC UH / ARTC.DU